U.K. Utilities Accused by Ovo of Overcharging Customers

Britain’s biggest utilities are charging as much “as they can get away with,” the leader of a smaller supplier said in testimony to Parliament that broke ranks with the rest of the industry.

Facing questions from lawmakers about why the cost of energy has outpaced inflation since the recession in 2008, Ovo Energy Ltd. Managing Director Stephen Fitzpatrick said he could see no reason that the biggest six utilities have boosted bills for consumers as much as they have.

“I can’t explain any of these price rises other than they are not the rises we see in the liquid wholesale market,” Fitzpatrick said at a hearing of the Energy and Climate Change Committee in the House of Commons in London yesterday. “It looks to me that a number of energy companies are charging the maximum they can get away with. Npower is the worst offender.”

The comments fed anger within Parliament about the cost of energy, which has risen 30 percent in real terms since 2007. Lawmakers from the main parties on the panel probed executives about whether the industry should be broken up or subjected to a probe by anti-trust regulators.

Big Six

Executives from the so-called Big Six utilities -- Centrica Plc, SSE Plc, EDF Energy Plc, EON SE, Iberdrola SA’s Scottish Power Ltd. and RWE AG’s Npower unit -- denied suggestions that they’re profiting unfairly. They blamed the gains on increases in natural gas costs, rises in levies to pay for clean energy and regulations requiring they reduce carbon emissions. They rejected suggestions they’re raising bills while they can before the next election, when the Labour opposition might take power.

“We are one of the companies that put prices up, and we did so because of external cost pressures,” said Guy Johnson, external affairs director at RWE Npower. “We’re not raising them in anticipation of a price freeze.”

Prime Minister David Cameron’s government is studying measures it could take to rein in costs, and the Labour opposition has pledged to freeze bills. The energy committee including lawmakers from the three main parties summoned executives from a number of companies to explain the increases.

Gas Costs

Ofgem, the industry regulator, said last night the cost of wholesale gas and electricity for a typical dual fuel customer during the last year would have risen by 10 pounds to 610 pounds. It could be higher depending on the company’s hedging strategy for buying the fuels in forward markets.

Ovo’s Fitzpatrick said the most his company paid for wholesale gas was 74 pence ($1.19) a therm in May 2011. It’s since been below 72 pence a therm, he said. Ovo, which increased prices 5.8 percent for its fixed rate energy tariff in April citing wholesale costs, buys in the wholesale market, he said.

Debate about what to do with the industry spilled into television studios, with ministers and opposition lawmakers challenging the industry to find a way to make electricity cheaper.

“We don’t need more excuses or reviews,” Labour leader Ed Miliband said on Sky News. “We need action. We need to restore a proper market. I will accept nothing less than a price freeze. Labour’s price freeze will happen.”

Government View

Michael Fallon, the Conservative-led government’s energy minister, said he’s pressing the utilities to make their finances more transparent and to bring greater competition to the industry.

“Nobody believes a price freeze would work,” Fallon said on Sky News.

William Morris, managing director at SSE, said costs of social and environmental programs account for about 10 percent of a typical dual fuel bill. They rose 13 percent from a year ago. Initiatives such as the Energy Companies Obligation should be paid for through general taxation, rather than consumer bills, he said.

Possible Savings

He said the utility would pass on savings to customers if government pared green levies. Cameron said Oct. 23 there is a need to roll back green levies, which suppliers say contribute to higher costs. Npower’s Johnson said ECO is an “uncapped cost.”

Environmental group Greenpeace said energy companies should stop using green taxes as a “fig leaf.”

“Gas prices, not renewable energy, have pushed bills up. Green taxes remain a fraction of household bills, and are one of the best investments that can be made today to reduce costs for consumers over time,” Policy Director Doug Parr said by e-mail.

Competition Commission

The biggest problem in the industry is lack of competition, according to Fitzpatrick from Ovo.

“If you don’t have effective competition in the retail market you’re always going to be trying to find out where the money is going,” he said. “That is the best way to keep everyone on their toes.”

Tony Cocker, chief executive officer at EON U.K. Plc, said he’d written to Cameron and Energy Secretary Ed Davey calling for a competition commission inquiry to help “depoliticize the debate,” he said.

“I fundamentally believe this market is competitive,” he said. “But we are not trusted,” so the industry needs the inquiry supported by Ofgem, he said.

The Labour Party would also split up Britain’s six largest gas and electricity companies and force them to trade all their power on the open market. Cocker said he didn’t see “advantages” to vertical integration, where business units are managed by a common owner.

Ofgem’s interim Chief Executive Officer Andrew Wright said the regulator will publish an annual review of the state of the market in Spring, focusing on reforms in the retail segment it proposed last year to help get customers on the lowest tariffs.

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